Has ‘Managerial Enterprise’ Contributed to the Success of Leading Economies?

Has ‘managerial enterprise’ contributed to the success of leading economies? To what extent can this organizational form be applied in differing national circumstances? This paper analyses Alfred Chandler’s views (as expressed in his recent 1990 book, Scale and Scope) on managerial enterprises and international comparative advantage, with a view towards assessing it’s contribution to the success of leading economies.

It will be argued that ‘managerial enterprises’ has contributed to the success of the US economy, particularly where ever-increasing size has been a matter of fact. It will also be argued that Chandler’s views on managerial enterprises relied too heavily upon the US ideal, and whilst some relations exist, largely this organisational form is inflexible to adapt to differing national circumstances. As a consequence it is inadequate to explain the long-term comparative success of other nations like China, Britain, Japan, and Germany.

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It will be argued that there are variations of organisational structures in these countries due to the economic context in which they operate in, and therefore other critical success factors such as the role of the state, banking, culture, technology, global webs and business networks have all played a role in the organisational structure adopted and success of these leading economies today. Chandler’s framework is derived from the US experience, as it was the first leading industrial nation, and by 1913 its industrial output exceeded that of Germany and Britain combined (Hannah. 1991).

Chandler acknowledges that the main motive for large-scale enterprises in US is the ”organizational capabilities’ these firms created to reap the economies of scale and of scope inherent in capital intensive firms such as making cars, agricultural products, smelting metals, and refining oils, as they could achieve significant drops in cost per units as the volume increases, and make a range of products using the same production unit from similar materials or with similar labour.

The benefits of economies of scale and Scope can be seen in Exxon, who increased capacity to 1500 barrels from 500 barrels, and thus reduced the cost of making a gallon of kerosene from 5? to 2. 5? (Chandler in Harvey, 1993:15).

In order to benefits from economics of scale and scope, he argued that an entrepreneur such as Rockefeller in the United States or a Siemens in Germany had to make a three-pronged investment: build a large-scale plant; create a national, even international distributing and marketing network so that the volume of sales might keep pace with the new volume of production; and to benefit fully from these two kinds of investment, entrepreneurs, develop a hierarchy of managers to coordinate the high-volume flows. Plants had to be kept running full and steady. That task required careful coordination and control by skilled managers.

The flow of supplies and the share of market had to be sufficient to assure the production required for scale or scope economies. He argued that salaried managers should make top-level management decisions, which own little of the company’s stock, and not the founders or anyone with financial interests, labelled this type of enterprise a managerial enterprise (A. D Chandler. , 1980 cited in Morikawa. , 1995). The success of these investments can be seen in highly successful companies like IBM, who made the three pronged investments necessary and thus was seen as the first mover in their industry (Chandler in Harvey, 1993:16).

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